gsa schedule contracts: opportunities and legal...

Presenting a live 90‐minute webinar with interactive Q&A

GSA Schedule Contracts: Opportunities and Legal RisksComplying With Complex Federal Regulations and Avoiding False Claims Act Violations

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JUNE 1, 2011

Today’s faculty features:

J. Catherine Kunz, Partner, Crowell & Moring, Washington, D.C.

Holly A. Roth, Partner, Manatt Phelps & Phillips, Washington, D.C.

Kevin J. Maynard, Partner, Wiley Rein, Washington, D.C.

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GSA Multiple Award ScheduleGSA Multiple Award Schedule Program: Contracting Process, Hi h Ri k AHigh Risk Areas

Presented By:Kevin J. Maynard

Wiley Rein LLP

June 1, 2011

These slides are accompanied by an oral presentation and should not be relied upon as legal advice

AgendaAgenda

GSA Schedule OverviewGSA Schedule Overview Contracting Process

• Proposal process • Prerequisites for obtaining GSA Schedule contract • Pre-award audits • Extension processExtension process

High Risk Areas• CSP Disclosures• Price Reductions Clause

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OverviewOverview

GSA Multiple Award Schedule (“MAS”) Program isGSA Multiple Award Schedule ( MAS ) Program is one of the primary vehicles used by Federal agencies to acquire “commercial items”• More than $30 billion dollars of goods and services sold

through MAS program each year• Used by Federal agencies, authorized contractors and some

state and local governments (“Cooperative Purchasing”)• More than 18,000 MAS contracts, delivering variety of

different products and services through 40 different “schedules”• Ability to form “Contractor Team Arrangements” with other

Schedule holders to offer “total solution”

Getting “on Schedule” provides access to a huge

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g p gpotential market, but is only the first step....

OverviewOverview

Streamlines contracting process by establishing pricingStreamlines contracting process by establishing pricing and other standard terms and conditions• Includes five-year base period, plus three five-year option

periods (“renewals”) for a total contract term of up to 20 yearsp ( ) p y• Prices negotiated by GSA are determined to be “fair and

reasonable,” agencies not required to conduct further price analysis Economic Price Adjustment clause allows for periodic adjustments during

contract (e.g., agreed upon escalation rate, market indicator)• Includes “commercial item” terms and conditions that are

intended to look more like commercial terms and conditionsintended to look more like commercial terms and conditions Although more streamlined than more “traditional”

Government contracts, Schedules present unique compliance obligations and risks

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compliance obligations and risks....

Contracting Process: Proposal ProcessContracting Process: Proposal Process

GSA maintains an “open” solicitation which allows offers to be psubmitted at any time• While GSA reports it needs anywhere from 30 to 120 days to process a

viable offer, negotiations often take longer “Vendor Response Document” identifies required documentation:Vendor Response Document identifies required documentation:

• Financial Documents• Commercial Pricelist• Descriptive Literature

Off d P i i• Offered Pricing• Proposed EPA Mechanism (including supporting documentation)• Discounting Policies• Production Point• Copy of ORCA Record• Copy of CCR Record• Organization Structure• Past Performance Evaluation Report (D & B)

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• Past Performance Evaluation Report (D & B)• Commercial Sales Practices (CSP) Format

Contracting Process: Proposal ProcessContracting Process: Proposal Process

“Vendor Response Document” also identifies certain “optional”Vendor Response Document also identifies certain optionaldocumentation that may be submitted:• Pricing Support• Training Course Descriptions• Training Course Descriptions• Authorized Dealer(s) Information• Labor Category Descriptions (if applicable)• Professional Services Experience• Professional Services Experience• Letters of Supply• Subcontracting Plan (If Large Business)• Compensation Plan For Professional Employees• Compensation Plan For Professional Employees

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Contracting Process: Preaward AuditsContracting Process: Preaward Audits

OIG audits most likely to occur prior to award of a newOIG audits most likely to occur prior to award of a new MAS contract, or at time of renewal/option extension, to determine if:• CSP submission is current, accurate and completeCSP submission is current, accurate and complete• Schedule holder’s sales monitoring and billing systems will ensure

compliance with Price Reductions and billing terms of the contract• Company can adequately accumulate and report schedule sales for

I d i l F di F (IFF)Industrial Funding Fee (IFF) payment purposes• Employees are qualified for the labor position to which they are

assigned (for services)• Company has an adequate accounting system for the segregation andCompany has an adequate accounting system for the segregation and

accumulation of labor hours, materials, and other direct costs (ODCs) on time-and-materials task orders (for services)

OIG will present recommended pricing to GSA

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Contracting Officer

Risk Areas: CSP DisclosuresRisk Areas: CSP Disclosures

GSA’s goal in negotiating Schedule prices is to “obtainGSA s goal in negotiating Schedule prices is to obtain the offeror’s best price (the best price given to the most favored customer).” GSAR 538.270(a).

However, GSA policy “recognizes that the terms and conditions of commercial sales vary and there may be legitimate reasons why the best price is not achieved.”legitimate reasons why the best price is not achieved.

Ultimately, GSA must determine that prices are “fair and reasonable.” See, e.g., GSAR 538.271(b) ; GSAR 538 270(d) ( h i i d l h h b i538.270(d) (authorizing award at less than the best price if “[t]he prices offered to the Government are fair and reasonable, even though comparable discounts were not

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g pnegotiated”).


To assist GSA in negotiating GSA Schedule prices thatTo assist GSA in negotiating GSA Schedule prices that are “fair and reasonable,” contractors are required to submit detailed information regarding discounts and th C i l S l P ti (“CSP”)other Commercial Sales Practices (“CSP”).

• Although not technically certified, CSP instructions inform offerors that “[t]he Government expects you to provide information required by the format in accordance with these instructions that is, to the best of your knowledge and belief, current, accurate, and complete as of 14 calendar days prior to it b i i Y t l di l h iits submission. You must also disclose any changes in your price list(s), discounts and/or discounting policies which occur after the offer is submitted, but before the close of negotiations ” GSAR 515 408(c) Figure 515 4-2

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negotiations. GSAR 515.408(c), Figure 515.4-2.


Standard CSP form requires Schedule holder to discloseStandard CSP form requires Schedule holder to disclose the following information:• Disclose dollar value of sales to the general public at or based

t bli h d t l k t i d i th ion an established catalog or market price during the previous 12-month period/last fiscal year

• Estimate total projected annual sales to the Government under th S h d l f h SIN ff d ( t t 12 th fthe Schedule, for each SIN offered (or most recent 12 months of sales under existing GSA Schedule for renewals)

• Disclose whether the discounts and any concessions offered to GSA “ l t b tt th b t i ” ff d tGSA are “equal to or better than your best price” offered to any customer:

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• Disclose discounts and concessions offered to commercial customers which receive the “best discount”

Customer: “Any entity, except the Federal Government, which acquires supplies or services from the Offeror” (e.g., OEMs, VARs, state and local governments distributors educational institutions etc )local governments, distributors, educational institutions, etc.)

Discount: “The best discount” at which offeror sells to the customer or category of customer, without regard to quantity or other terms and conditions. A “discount” is defined as any “reduction to catalog prices” such the net price is lower than the list price; may include “rebates, p p ; y ,quantity discounts, purchase option credits, and any other terms or conditions (other than concessions) which reduce the amount of money a customer ultimately pays for goods or services ordered or received”

Concession: A “benefit, enhancement or privilege” other than a discount that “either reduces the overall cost of a customer’s acquisition or

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that either reduces the overall cost of a customer s acquisition or encourages a customer to consummate a purchase” (e.g., freight allowance, extended warranty, extended price guarantees, free installation and bonus goods)


• Disclose any “deviations” from standard commercial salesDisclose any deviations from standard commercial sales practices that result in customers receiving better discounts

Deviations: Offeror must “provide an explanation of the circumstances under which you deviate from your written policies or standard commercial sales practices disclosed in the chart on the Commercial S l P i F d l i h f h YSales Practices Format and explain how often they occur. Your explanation should include a discussion of situations that lead to deviations from standard practice, an explanation of how often they occur, and the controls you employ to assure the integrity of your

i i ”pricing.” Examples of deviations may include “one time goodwill discounts

to charity organizations or to compensate an otherwise disgruntled customer; a limited sale of obsolete or damaged goods; the sale of

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sample goods to a new customer; or the sales of prototype goods for testing purposes.”


• If Schedule holder is a “a dealer/reseller without significantIf Schedule holder is a a dealer/reseller without significant sales to the general public,” proposal must also include CSP data from manufacturer; Authorization for Government to access manufacturer’s records to verify

accuracy of CSP data; and For each SIN, the following additional information:

Manufacturer's Name Manufacturer's Part Number Manufacturer s Part Number Dealer's/Reseller's Part Number Product Description Manufacturer's List Price Dealer's/Reseller's percentage discount from List Price or net prices

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Schedule holder must represent that CSPs are “currentSchedule holder must represent that CSPs are current, accurate, and complete as of 14 calendar days prior to its submission,” and must disclose that occur “after the

ff i b itt d b t b f th l f ti ti ”offer is submitted, but before the close of negotiations.”GSAR 515.408(c), Figure 515.4-2.

In addition, CSPs must be updated or re-affirmed at theIn addition, CSPs must be updated or re affirmed at the time of contract extension, and/or at the time of any modification to add products or services. 552.243-72, “Modifications”Modifications

Failure to provide accurate disclosures can result in liability for “defective pricing” under the False Claims

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y p gAct


Best Practices for Preparing CSPsBest Practices for Preparing CSPs• Treat as coordinated effort between sales, finance, and legal

personnelP f h i “ ” d l i f l li i• Perform comprehensive “sweep” and analysis of sales policies and data prior to proposal submission and contract extensions Identify all current written pricing and discounting policies

A l t l l d t t t d t i t l l Analyze actual sales data, agreements to determine actual sales practices and deviations from standard policies and practices

• Prepare narrative thoroughly documenting CSP analysis E l i d t il CSP (d t i d Explain process used to compile CSPs (data reviewed,

definitions, etc.) Identity any limitations or questions concerning the data Identify and explain deviations from standard policies or practice

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Identify and explain deviations from standard policies or practice• Prepare updated CSPs on a regular basis

Risk Areas: Price Reductions ClauseRisk Areas: Price Reductions Clause

GSAR 552.238-75, “Price Reductions,” designed to provide priceGSAR 552.238 75, Price Reductions, designed to provide price protection to Government during term of Schedule contract• Parties agree upon price/discount relationship between GSA and an

agreed upon “Basis of Award” (or “tracking”) customer or category of customers

• During performance of Schedule contract, a “price reduction” may be triggered if Contractor revises the commercial pricelist or other document

upon which the contract was predicated to reduce prices Contractor grants more favorable discounts or terms and

conditions than those contained in the commercial pricelist orconditions than those contained in the commercial pricelist or other document upon which the contract was predicated

Contractor grants special discounts to the Basis of Award customer or category of customers (if price/discount relationship

20

g y ( p pis disturbed)


If a price reduction occurs, Schedule holder must notifyIf a price reduction occurs, Schedule holder must notify GSA within 15 days after the effective date of the reduction. GSAR 552.238-75(f)

If a price red ction occ rs the Sched le holder m st If a price reduction occurs, the Schedule holder must offer the same price reduction to the Government “with the same effective date, and for the same time period, as extended to the commercial customer (or category ofas extended to the commercial customer (or category of customers).” GSAR 552/238-75(c)(2)

In addition, “[t]he contract will be modified to reflect any price reduction which becomes applicable in accordance with this clause.” GSAR 552.238-75(g)

Recent cases show that failure to disclose price

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Recent cases show that failure to disclose price reductions can result in significant liability


Under the Price Reductions Clause, there is no priceUnder the Price Reductions Clause, there is no price reduction for:• Sales to commercial customers under firm, fixed-price definite

quantity contracts with specified delivery in excess of thequantity contracts with specified delivery in excess of the maximum order threshold;

• Sales to “eligible ordering activities” under the Schedule (i.e., federal agencies);federal agencies);

• Sales to State and local government entities when the order is placed under the Schedule contract

• Reductions caused by an “error in quotation or billing• Reductions caused by an error in quotation or billing, provided adequate documentation is furnished by the Contractor to the Contracting Officer.”

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Best Practices for complying with the Price ReductionsBest Practices for complying with the Price Reductions clause:• Negotiate a manageable Basis of Award (e.g., a single

customer or category of customer, as opposed to “allcustomer or category of customer, as opposed to all commercial customers”)

• Clearly define and document the basis of award customer and price/discount relationship in the final proposalprice/discount relationship in the final proposal revision/contract

• Implement internal control systems to monitor compliance (e.g., review and approval of transactions with basis of award(e.g., review and approval of transactions with basis of award customer(s), automated flags in quoting and order entry systems for basis of award customers)

• Provide appropriate training to personnel involved in sales

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Provide appropriate training to personnel involved in sales with basis of award customer(s)

ContactContact

i d Kevin J. Maynard202.719.3143kmaynard@wileyrein [email protected]

Page 24

Noncompliance – High Risk AreasNoncompliance High Risk AreasTAA, Unapproved Sales, Employee QualificationsHolly RothPartnerGovernment & Regulatory PolicyManatt Phelps & Phillips, LLP700 12th Street, N.W.Suite 1100Washington, D.C. 20005Phone: (202) 585-6558Fax: (202) 637-1528Fax: (202) 637 [email protected]

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Trade Agreements Act19 U.S.C. 2501, et seq

Trade Agreements Act provides an exception to the U.S. policy that the federal government may only acquire domestic end products for public use in the United St t (B A i A t 41 U S C 10 10d)States (Buy American Act, 41 U.S.C. 10a - 10d).

TAA implements numerous multilateral and bilateral international trade agreements and other trade initiatives.

U.S. Trade Representative (USTR) has the designated authority to waive, and has waived, the Buy American Act for acquisitions covered by: World Trade Organization Government Procurement Agreement (WTP GPA),

Free Trade Agreements (FTA), or

the Israeli Trade Act.

Acquisition value is a determining factor in the applicability of trade agreements.q g pp y g Dollar thresholds are subject to revision by the USTR approximately every 2 years.

Manatt, Phelps & Phillips, LLP

27Trade Agreements Act (cont.)

Trade Agreement

Supply Contract (equal to or exceeding)

Service Contract (equal to or exceeding)

Construction Contract (equal to or

exceeding)Trade Agreement exceeding) exceeding) exceeding)

WTO GPA $203,000 $203,000 $7,804,000

FTAs:

Australia FTA 70,079 70,079 7,804,000

Bahrain FTA 203,000 203,000 9,110,318

CAFTA-DR 70,079 70,079 7,804,000

Chile FTA 70,079 70,079 7,804,000

Morocco FTA 203 000 203 000 7 804 000Morocco FTA 203,000 203,000 7,804,000


28Trade Agreements Act (cont.)

Trade Agreement

Supply Contract (equal to or exceeding)

Service Contract (equal to or exceeding)

Construction Contract (equal to or

exceeding)Trade Agreement exceeding) exceeding) exceeding)

NAFTA:

Canada $25,000 $70,079 $9,110,318

Mexico 70,079 70,079 9,110,318

Oman FTA 203,000 203,000 9,110,318

Peru FTA 203,000 203,000 7,804,000

Singapore FTA 70,079 70,079 7,804,000

Israeli Trade Act 50 000Israeli Trade Act 50,000


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Trade Agreements ActGSA MAS Contracts

GSA assumes that the estimated dollar value of MAS contract exceeds TAAGSA assumes that the estimated dollar value of MAS contract exceeds TAA threshold;

GSA i t FAR 52 225 5 T d A t b fGSA incorporates FAR 52.225-5, Trade Agreements, by reference.

FAR 52.225-5 applies to all products (supplies) offered for sale under GSA MAS contracts.


30

FAR 52.225-5Trade Agreements Act

U.S. or Designated Country End-Product means a product or supply that: is WHOLLY THE GROWTH, PRODUCT, OR MANUFACTURE of the U.S. or an FTA country; ory

in the case of a product that consists in whole or in part of materials from another country, has been SUBSTANTIALLY TRANSFORMED in the U.S. or an FTA country into a new and different article of commerce with

a name– a name,

– a character, or

– a use distinct from that of the article or articles from which it was transformed.

U S or Designated Country End Product refers to a product offered forU.S. or Designated Country End-Product refers to a product offered for purchase under a supply contract.

Calculation of value of the “end product” includes services (except transportation services) incidental to the product provided that the value of those incidentalservices) incidental to the product, provided that the value of those incidental services does not exceed that of the article itself.


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FAR 52.225-5Trade Agreements Act (Aug 2009)

Designated Country means: A WTO GPA countryy

A Free Trade Agreement Country

A least developed country

A Caribbean basin country


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FAR 52.225-5 (Aug 2009)WTO Countries

Aruba

Austria

Taiwan

(known in the World

Hong Kong

HungaryMalta

NetherlandsBelgium

Bulgaria

Canada

Trade Organization as “the Separate Customs Territory of Taiwan, Penghu,

Hungary

Iceland

Ireland

Netherlands

Norway

PolandCanada

Cyprus

Czech Republic

Kinmen and Matsu (Chinese Taipei))”

United Kingdom

Israel

Italy

Japan

Portugal

Romania

Denmark

Estonia

Finland

Japan

Korea (Republic of)

Latvia

Singapore

Slovak Republic

SloveniaFrance

Germany

Greece

Liechtenstein

Lithuania

Slovenia

Spain

Sweden


GreeceLuxembourg Switzerland

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FAR 52.225-5 (Aug 2009)Free Trade Agreement Countries

Australia

Bahrain

Nicaragua

Oman

Canada

Chile

Costa Rica

Peru, or

Singapore

Costa Rica

Dominican Republic

El Salvador, Guatemala

Honduras

Mexico

Morocco


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FAR 52.225-5 (Aug 2009)Least Developed Countries

Afghanistan

Angola

MozambiqueNepalNiger

Equatorial GuineaEritreaEthiopiaBangladesh

Benin

Bhutan

Burkina Faso

NigerRwandaSamoaSao Tome and Principe

EthiopiaGambiaGuineaGuinea-Bissau

Burkina Faso

Burund

Cambodia

Central African Republic

SenegalSierra LeoneSolomon IslandsSomalia

HaitiKiribatiLaosLesothop

Chad

Comoros

Democratic Republic of Congo

SomaliaTanzaniaTogoTuvalu

LesothoLiberiaMadagascarMalawi

Congo

Djibouti

East Timor

UgandaVanuatuYemenZambia

MaldivesMaliMauritania


Zambia

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FAR 52.225-5 (Aug 2009)Caribbean Basin Countries

Antigua and Barbuda

Aruba

St. Kitts and Nevis

St. Lucia

Bahamas

Barbados

Belize

St. Vincent and the Grenadines

Trinidad and Tobago

Belize

British Virgin Islands

Dominica

Grenada

Guyana

Haiti

Jamaica

Montserrat

Netherlands Antilles


Netherlands Antilles

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Trade Agreements Act“Substantially Transformed”

U.S. Customs and Border Control evaluates whether an article is or would be a end-product of a designated country and issues: country of origin advisory rulings and

final determinations


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Trade Agreements Act“Substantially Transformed” (cont.)

Determinative issue of whether an end-product has been substantially transformed is the extent of operations performed and whether the parts lose th i id tit d b i t l t f th ti l B l t Litheir identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984).


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Extent of operations performed: Whether an operation is complex and meaningful depends on the nature of the operation, including p p g p p g

the number of components assembled, number of different operations, time, skill level required, attention to detail, quality control, the value added to the article, and the overall employment generated by the manufacturing process.

– Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.

» Example: Assemble yourself bicycle kit. Box identifies components in box as bicycle.

– Assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformationinvolving a considerable amount of time and skill resulted in a substantial transformation.

» Example: 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled.


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Loss of identity and integration into new material Consideration of the essential character of the imported article:p

– Determined that imported uppers were the essence of a completed shoe, Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 3 CIT 220, 224-225 (1982), and

– Court addressed each of the factors (name, character, and use) in finding that no substantial transformation occurred in the production of retail juice products from manufacturingtransformation occurred in the production of retail juice products from manufacturing concentrate, National Juice Products Association, et al v. United States, 628 F. Supp. 978, 10 CIT 48, 61 (1986).


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Primary factors considered in totality of the circumstances analysis: country of origin of the item’s components,y g p

extent of the processing that occurs within a country, and whether such processing renders a product with

– new name,

– new character, and

– new use.

Additional factors considered: the resources expended on product design and development,

extent and nature of post-assembly inspection and testing procedures, and

worker skill required during the actual manufacturing process.

No one factor predominant.


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52.225-5(b)Certification Requirement

The Contractor shall deliver under this contract only U.S.-made or designated country end products except to the extent that, in its offer, it specified delivery of

th d d t i th i i titl d “T d A t C tifi t ”other end products in the provision entitled “Trade Agreements Certificate.”


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Trade Agreements CertificateFAR 52.212-3(g)(4)

The offeror certifies that each end product, except those listed in paragraph (g)(4)(ii) of this provision, is a U.S.-made or designated country end product, as defined in the clause of this solicitation entitled “Trade Agreements ”of this solicitation entitled Trade Agreements.

The offeror shall list as other end products those end products that are not U.S.-made or designated country end products. Other End ProductsOther End Products

Line Item No.

Country of Origin

List as necessary

The Government will evaluate offers in accordance with the policies and procedures of FAR Part 25. For line items covered by the WTO GPA, the Government will evaluate offers of U.S.-made or designated country end products without regard to the restrictions of the Buy American Act The Government will consider for award only offers of U S -of the Buy American Act. The Government will consider for award only offers of U.S.made or designated country end products unless the Contracting Officer determines that there are no offers for such products or that the offers for such products are insufficient to fulfill the requirements of the solicitation.


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Trade Agreements ActGSA Advantage!

Must accurately reflect the country of origin (COO).

GSA Industrial Operations Analysts (IOAs) will conduct sample verification TAAGSA Industrial Operations Analysts (IOAs) will conduct sample verification TAA compliance including accurate identification of COO.


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Trade Agreements ActRisk for Noncompliance?

Material breach of contract;

Possible violation of False Claims Act.Possible violation of False Claims Act.


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Trade Agreements ActProcedures for Compliance

Resellers/Dealers: Require Trade Agreements Act Certification and indemnification from vendors on periodic basis.

Manufacturers: Require advance notice of transfer of manufacturing facilities and monitor country of origin.

Update GSA Schedule contracts with respect to country of origin.Update GSA Schedule contracts with respect to country of origin.

Acquisitions: Verify TAA compliance programs in place and in force.


46

Unapproved Item Sales aka“Open Market”, “Noncontract” or “Incidental”

All GSA schedule contractors must publish an “Authorized Federal Supply Schedule Pricelist” that contains: all supplies and services offered; and

the pricing and the terms and conditions pertaining to each Special Item Number that is on schedule.

Federal Supply Schedule Pricelist defines the “scope” of the contractor’s contract.

Supplies and Services not identified in pricelist are outside the scope of the t tcontract.


47

Unapproved Item SalesFAR 8.402(f)

For administrative convenience, an ordering activity contracting officer may add items not on the Federal Supply Schedule (also referred to as open market it ) t F d l S l S h d l bl k t h t (BPA)items) to a Federal Supply Schedule blanket purchase agreement (BPA) or an individual task or delivery order only if— All applicable acquisition regulations pertaining to the purchase of the items not on the Federal

Supply Schedule have been followed (e g publicizing (Part 5) competition requirements (Part 6)Supply Schedule have been followed (e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15), and small business programs (Part 19));

The ordering activity contracting officer has determined the price for the items not on the Federal Supply Schedule is fair and reasonable;Supply Schedule is fair and reasonable;

The items are clearly labeled on the order as items not on the Federal Supply Schedule (e.g.labeled as “open market” in the proposal and invoice); and

All clauses applicable to items not on the Federal Supply Schedule are included in the order.


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Unapproved Item SalesRisks of Noncompliance

GSA Industrial Operations Analysts (IOAs) will conduct sample verification of compliance in accurately identifying open market items.

GSA may terminate contracts where contractors fail to identify open market items and exceed the scope of their GSA Schedule contract.

Imposition of FAR clauses applicable to open market items.Imposition of FAR clauses applicable to open market items.


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Unapproved Item SalesProcedures for Compliance

Internal identification procedures supplies and services on GSA Schedule contract (Pricelist).

Update GSA Schedule contract periodically to add/delete supplies and services.

Maintain uniform procedures for identifying “open market” items in quotations/proposals and invoices.quotations/proposals and invoices.


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Employee QualificationsExample GSA FSS Solicitations

Financial and Business Solutions (FABS)Schedule 520

FCXB-F4-020002-B

Mi i O i t d B i I t t d S i TFTP MC 000874 BMission Oriented Business Integrated Services (MOBIS)Schedule 874

TFTP-MC-000874-B

Professional Engineering Services (PES)Schedule 871

TFTP-MC-990871-BSchedule 871

Language ServicesSchedule 738 II

TFTP-GC-017382-B

Environmental ServicesSchedule 899

TFTP-EW-990899-B Schedule 899


51

Employee QualificationGSA FSS Proposal Requirements

For each proposed labor category, contractors required to provide: Detailed position descriptionp p

– Functional responsibilities;

– Minimum years experience;

– Minimum educational/degree requirements;

– Applicable training and/or certification requirements;

Where experience substitutes for education, explain methodology for substitution (e.g. five years experience equates to a BA/BS degree).


52

Employee QualificationGSA FSS Contract Requirements (cont.)

Contractor proposed descriptions become part of the GSA Authorized Price List and posted on GSAAdvantage.


53

Employee QualificationGSA FSS Contract Requirements (cont.)

Employees billed for CLIN services must meet minimum labor category requirements for the identified CLIN.


54

Employee QualificationRisks of Noncompliance

Failure to supply personnel that meet labor category descriptions: Breach of contract

Potential contract termination

Potential False Claims Act litigation


55

Employee QualificationProcedures for Compliance

Establish procedure to verify employee meets labor category description.

Verify resumes accurately reflect personnel experience, education andVerify resumes accurately reflect personnel experience, education and qualifications.

Periodic examination and update of resumes.

P i di i ti d difi ti f l b t iPeriodic examination and modification of labor categories.


56Holly Roth

Holly RothPartner

Ms. Roth has more than 20 years of government contracts experience, including 10 years with a Fortune 50 systems integrator as subcontracts manager. As part of her practice, Ms. R th d i d t li t h h ld GSA h d lRoth advises and represents clients who hold GSA schedule contracts with respect to negotiations, audits, investigations and bid protests.


57Manatt, Phelps & Phillips, LLP

The Firm Manatt, Phelps & Phillips, LLP, is known for quality, for extraordinary commitment to clients, for integrated, relationship-based services, and for a range of specialized capabilities typically f d l i b ti fi W i dfound only in boutique firms. We are progressive and entrepreneurial compared to other major firms; and we are deeply committed to diversity, to public service, to involvement in the communities we serve and to excellence in all we do.

We represent a sophisticated client base in a range of industriesWe represent a sophisticated client base in a range of industries including healthcare, financial services, entertainment, media and advertising, real estate, technology, energy and natural resources, consumer goods, government contracts and services and transportation. The government contracts lawyers at Manatt are a strategic legal and business resource for individuals and companies that market and provide products and services to international, federal, state and local government units. We provide “cradle to grave” guidance and representation on government contracts and subcontracts We provide guidance togovernment contracts and subcontracts. We provide guidance to our clients whether they sell commercial off the shelf (COTS) products and services or custom designed and built products and solutions to the government and every variation in between.


Audits and Oversight by GSAg y

Pre Award Audits- Pre-Award Audits

- Post-Award Audits

- IFF Audits

- Contractor Assist VisitsContractor Assist Visits

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Pre-Award Audits

Two contract clauses establish GSA’s audit authority:

(1) FAR 52.215-20, Alt. IV (GSA variation), Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data

– Applies to renewal proposals as well

– Grants GSA the right to examine the vendor’s books, records, documents, papers, and other di l i d if h i idirectly pertinent records to verify the pricing, sales and other data related to the proposed products/services

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p

Pre-Award Audits

(2) FAR 52.215-21, Alt. IV (GSA variation), Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data --Modifications

– Grants similar access to contractor’s books, records, and other documents to verify the pricing sales and other data related to thepricing, sales and other data related to the proposed products/services to be added to the contract via modification

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Pre-Award Audits

Typical findings:– CSP is not accurate, complete and/or current

– Most favored customer pricing not disclosedp g

– A full range of commercial discounts, terms and conditions more favorable than those offered to GSA

t di l dwere not disclosed

– Inadequate controls and procedures to properly monitor the price reduction and billing provisions ofmonitor the price reduction and billing provisions of the contract

– Inadequate controls and procedures to identify and

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report all GSA schedule sales

Pre-Award Audits

Typical findings, cont’d:yp g ,– Inadequate controls and procedures to identify and

report all GSA schedule sales

– For services Employees do not meet the education and work experience p y p

for the labor positions billed

Commercial pricelist used as the basis of award is not used by the vendorby the vendor

GSA labor categories do not map to the vendor’s labor categories used on the non-GSA schedule jobs

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Post-Award Audits

GSA’s audit authority is based on:y

GSAR 552.215-71, Examination of Records by GSA (Multiple Award Schedule)GSA (Multiple Award Schedule)

- Grants GSA the right to examine the contractor’s books, documents, papers, and records involving p p gcontract transactions for purposes of overbillings, billing errors, and compliance with PRC and IFF clauses

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Post-Award Audits

GSA auditors review sales transactions and other data toGSA auditors review sales transactions and other data to determine:

- whether contractor has charged proper prices required b iby its contract

- if contractor has complied with the PRC and passed along all required price reductions to the Governmentalong all required price reductions to the Government

- whether contractor has reported all GSA sales and paid IFF properly y

- whether contractor has complied with TAA and other contractual requirements

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Post-Award Audits

Common audit findingsg- failure to give price reductions to the governmentprice reduction clause negotiated by GSA provided little or no price reduction protection for the governmentprice reduction protection for the government- overbillings- contractor failed to properly identify all contract sales, so IFF reports and payments were inaccuratereports and payments were inaccurate- contractor did not comply with contract terms and conditions (e.g., warranty or delivery terms, TAA)- contractor used unqualified labor, or billed labor at incorrect rates

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GSA Audit Data

Provided by Theodore Stehney, Assistant Inspector General for Auditing, U.S. GSA OIG, in presentation to ABA Commercial Products and Services Committee, January 2010

MAS Preawards MAS Postawards

No. of Audits $ Audited Cost Avoidance No. of

Audits $ Audited Recommended Recoveries

FY 2007 68 $16.6 B $886 M 9 $463 M $3.9 M

FY 2008 68 $12.3 B $558 M 5 $345 M $2.1 M

FY 2009 66 $11.7 B $552 M 8 $401 M $5.6 M

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Industrial Funding Fee Auditsg

An IFF audit focuses on the contractor’s- An IFF audit focuses on the contractor s quarterly reporting of sales and payment of the Industrial Funding Feeg

- GSA zealously polices the IFF

- IFF payments can be a component of a pre- or post-award audit as well

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Contractor Assistance Visits

- Conducted by Industrial Operations Analysts rather than y p yauditors

- Purpose is to assist contractors in understanding contract requirements and provide evaluation ofcontract requirements and provide evaluation of compliance efforts System or process to monitor tracking customer

M ti i i l it i Meeting minimum sales criteria Including prompt payment terms in invoices Honoring warranties Timely deliveries Using electronic contracting tools Compliance with Trade Agreements Act

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p g

Contractor Assistance Visits

- IOAs willIOAs will - Test sales tracking system and processes

- Review sales data that support 72A reported sales for theReview sales data that support 72A reported sales for the quarters under review

- Issue a “report card” that rates the current level of compliance

- Set form with designated questions/issues against which a contractor is rated

- Frequency: generally two CAVs during each five-yearFrequency: generally two CAVs during each five year contract period

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Contractor Assistance Visits v. Audits

IOAs do not have subpoena power

IG auditors have subpoena powerpower power

Involves a short visit and quick turnaround time

Usually involves lengthy data collection and analysisturnaround time collection and analysis

IOAs review many compliance areas

IG auditors focus on pricing issuesareas issues

IOAs review process and conduct data sampling

IG auditors undertake a complete review of sales p g ptransactions

Conducted near the middle and end of a five-year contract

Conducted pre-award and/or post-award

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Recent Enforcement Actions

The government and whistleblowers have discovered that sizable sums can be recovered in pursuit of GSA Schedule contractors

Th l t GSA S h d l ttl t h d i 2009 f– The largest GSA Schedule settlement was reached in 2009 for $128 million

– Another large settlement, $87.5 million, was reached in the spring of 2010

– The government has intervened in a False Claims Act action against a large technology contractor and has included creativeagainst a large technology contractor and has included creative allegations

– Even competitors are getting in the mix and filing False Claims Act cases

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Act cases

Price Reduction Violations

U.S. ex rel. Kapuscinski v. Network Appliance, Inc. – Former company employee alleged that NetApp

f il d t l ith th i d ti l dfailed to comply with the price reduction clause and give the government appropriate price decreases Discovered while preparing for an IFF audit; brought to p p g ; g

company management’s attention but company did not address identified problems or make any disclosures to GSA

– Government investigated the case and the parties reached a settlement

L t ttl t i GSA’ hi t $128 illi

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– Largest settlement in GSA’s history: $128 million

Pricing Disclosure and Anti-Kickback ViolationsViolations

U.S. ex rel. Rille v. EMC Corporation p– Originally filed as a qui tam action, U.S. intervened

in the case Alleged that EMC misrepresented its commercial pricing

practices to the government

Also alleged that EMC (and the other technology companies with Schedule contracts) paid illegal kickbacks to influence the government’s purchase of IT products

– Settlement reached in May 2010 for $87.5 million Oracle, on behalf of Sun Microsystems, settled similar

ll ti i J 2011 f $46 illi

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allegations in January 2011 for $46 million

Pricing Disclosure, Price Reduction, and Certification ViolationsCertification Violations

U.S. ex rel. Frascella v. Oracle Corp.p– Started as a qui tam complaint filed by a current

Oracle employee; U.S. government filed its complaint in intervention in July 2010 Alleges that the company’s pricing disclosures were not

current accurate or completecurrent, accurate, or complete

Alleges the company submitted false certifications about its pricing

Interestingly, alleges the company improperly manipulated orders to avoid triggering the Price Reduction Clause

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Trade Agreements Act Violationsg

U.S. ex rel. Folliard v. CDW Technology Svcs.– False Claims Act case filed by an employee of a competitor,

alleging that CDW listed a number of products on its Schedule contract made in China and other non-designated countriesg

U.S. ex rel. Crennen v. Dell Marketing L.P.– Also alleged that Schedule contractor was listing products fromAlso alleged that Schedule contractor was listing products from

non-designated countries for sale on its GSA Schedule contract

U.S. ex rel. Navarro v. Divine Imaging Inc.– Government has intervened in case alleging several Schedule

contractors sold office supply products from non-designated countries

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Cathy Kunzy

Cathy Kunz is a partner in the Washington office of Crowell & Moring LLP. She is a member of the firm's Government Contracts group Her practiceShe is a member of the firm's Government Contracts group. Her practice involves both counseling and litigating on behalf of clients in a range of government contract law areas, including GSA Schedule contracting, contract claims and disputes, fraud and abuse, cost accounting issues, purchasing g gand subcontracting, and federal health care contracting. Cathy also represents clients in qui tam actions under the False Claims Act and in bid protests, and counsels clients on government audits, procurement ethics, compliance programs and contract administrationcompliance programs, and contract administration.

Cathy can be reached at (202) 624-2957 or [email protected]. Information on Crowell &Moring can be found at www.crowell.com.

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